TMI Blog2013 (1) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of the facts in Arbitration (L) No. 49 of 2013 and the same are therefore, summarized as under : (a) The applicant is engaged in providing physiotherapy, physical fitness/health services etc. for sports items in tournaments/camps. etc. On 23rd January, 2008 the parties entered into ICL Professional Services Agreement (for short referred to as Agreement ). The agreement was valid for the period of three years. According to applicant, sum of US $ 26,2904 is outstanding and payable by the respondent to the applicant. On 20th October, 2011, the applicant filed Company Petition (13 of 2012) under section 434 of the Companies Act, 1956 in this court against the respondent for winding up. By an order dated 29 th June, 2012, this court disposed of the said Company Petition and other similar Company Petitions filed by the other applicants on similar terms. By consent of parties, this court directed the respondent to deposit an amount of ₹ 7,13,475/- in this court within the period of six weeks and referred the disputes between the parties which were subject matter of the said petition to the sole arbitration of Dr. Birendra Saraf and directed the learned arbitrator to make e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Act, 1996. (g) The respondent vide its advocate's letter dated 5 th December, 2012 once again informed the applicant that under clause 21 of the agreement, the respondent had appointed Shri Justice A.D. Mane (retired) to act as sole arbitrator and the question of applicant's consent as to the choice of the arbitrator did not arise. (h) It appears that by letter dated 12 th December, 2012, Shri Justice A.D. Mane (retired) the learned arbitrator fixed preliminary meeting on 14 th December, 2012 at 2.30 p.m. By advocate's letter dated 12 th December, 2012 it is reiterated that the applicant was not in agreement to the appointment of learned arbitrator as substituted arbitrator. The applicant through is advocate's letter dated 13 th December, 2012 once again expressed his protest to the appointment of the learned arbitrator and informed that the meeting fixed on 14th December, 2012 by the learned arbitrator would not be attended by the applicant or his advocates. (i) The respondent through its advocate's letter dated 13 th December,2012 clarified that the fixation of the meeting on 14 th December, 2012 was solely the decision of the learned arbitrator a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication Nos. 114 of 2002 and 90 of 2002 under Section 11 of the Act for appointment of the third arbitrator by asserting that in view of refusal of Shri S.N. Huddar to act as an arbitrator, it had appointed Shri S.L. Jain as a substitute arbitrator in terms of Section 15(2) of the Act and in that view of the matter respondent No. 2 was not entitled to act as the Sole Arbitrator. The designated Judge of the Bombay High Court allowed both the applications and appointed Shri Justice M.N. Chandurkar (Retired) as the third arbitrator. 5. By placing reliance upon the judgment of the Supreme Court in SBP Co. (supra) the learned counsel submits that under section 15(2) even if the appointment of the substituted arbitrator has to be made, it is to be in accordance with the agreement entered into between the parties. It is submitted that once by consent of both the parties, in company proceedings this court appointed the arbitrator which appointment was not in accordance with clause 21, the appointment of the substituted arbitrator also can be only by consent of both the 1 (2009) 10 SCC 293 parties and no appointment thus can be made by the respondent exercising rights under clause 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unable to perform his functions or for other reasons fails to act without undue delay: and (b) he withdraws from his office or the parties agree to the termination of his mandate. (2) If a controversy remains concerning any of the grounds referred to in Clause (a) of Sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on termination of the mandate. (3) If, under this section or Sub-section (3) of Section 13, an Arbitrator withdraws from his office or a party agreed to the termination of the mandate of an Arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or Sub-section (3) of Section 12. 15. Termination of mandate and substitution of Arbitrator (1) In addition to the circumstances referred to in Section 13 or Section 14, the mandate of an Arbitrator shall terminate (a) where he withdraws from office for any reason: or (b) by or pursuant to agreement of the parties. (2) Where the mandate of an Arbitrator terminates, a substitute Arbitrator shall be appointed according to the rules that were applicable to the appointment of the Arbitrator being replaced. (3) Unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view taken by the learned Single Judge of the Madras High Court. The power under Section 11 of the Act, as now held, is not administrative power but judicial power. Secondly, the death of Arbitrator ordinarily does not invalidate the arbitration agreement where it is so manifest. In the instant case it is not so. The clause survives. Therefore, if the named Arbitrator dies or refuses to proceed with the arbitration, the procedure under Section 11(6) of the Act will have to be followed. In our opinion, therefore, the view taken by this Court in Smt. Satya Kailashchandra Sahu and Ors. (supra) and by the Allahabad High Court in Dharmpal Satyapal Ltd. case (supra) will reflect the correct interpretation of the Act of 1996. 7. The learned counsel also placed reliance upon the judgment of the Calcutta High Court in the case of Ramjee Power Construction Ltd. Vs. Damodar Valley Corporation, decided on 5th February, 2009 in Arbitration Petition No. 606 of 2008 and more particularly paragraphs 18 to 20 which read thus : 18. In Yashwith Construction P. Ltd. Vs. Simplex Concrete Piles India Ltd. and Anr. reported in AIR 2006 SC 2798 the Supreme Court held as follows: Obviousl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to distinguish the judgments of the Supreme Court in the case of National Highway Authority of India and another Vs. Bumihiway DDB Ltd. (JV) and others 4 the judgment of the Supreme Court in the case of SBP Co. (supra), judgment of the Supreme Court in the case of Yashwith Constructions (P) Ltd. (supra) on the ground that the facts in these cases before the Supreme Court were different. 9. Mr. Hitesh Jain, the learned counsel appearing for the respondent on the other hand submits that section 15(2) of the Arbitration Conciliation Act, 1996 contemplates that where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. The learned counsel submits that the term rules used in section 15(2) is not confined to statutory rules or the rules framed by the competent authority in exercise of the power of delegated legislation but also includes the terms of agreement entered into between the parties. It is submitted that the appointment of the substitute arbitrator must be done according to the original agreement applicable to the appointment of the arbitrato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble under the contract and the right to make such an appointment was saved by Section 15(2) of the Act. The argument that Section 15(2) of the Act referred to statutory rules providing for appointment of Arbitrators and not to a contractual provision for such appointment was rejected by the learned Chief Justice. It was held by him that no occasion arose for him to appoint an arbitrator under Section 11(6) of the Act in the case. Thus, the application was dismissed leaving the parties to pursue their claims before the arbitrator appointed by the Managing Director in terms of arbitration agreement between the parties. 4. In our view, the learned Chief Justice and the Division Bench have rightly understood the scope of Section 15 of the Act. When the arbitrator originally appointed in terms of the arbitration agreement withdrew for health reasons, the Managing Director, as authorized originally by the arbitration agreement, promptly appointed a substitute arbitrator. It is true that in the arbitration agreement there is no specific provision authorizing the Managing Director to appoint a substitute arbitrator if the original appointment terminates or if the originally appointed ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the Chief Justice rendered on 4.3.2005, prior to the date of the decision in SBP Co. v. Patel Engineering Ltd. and Anr. (supra) rendered on 26.10.2005. 11. The learned counsel also placed reliance upon the judgment of the Supreme Court in the case of National Highways Authority of India and Another Vs. Bumihiway DDB Ltd. (JV) and Ors (supra) and more particularly paragraph nos. 30, 34 and 44 which read as under : 30. It is pertinent to state that under Section 11(6) of the Act, the Court has jurisdiction to make the appointment only when the person including an institution, fails to perform any function entrusted to it under that procedure. In the present case, the relief claimed by the respondents by invoking Section 11(6) is wholly erroneous as prior to the order dated 1.7.2005, the respondents only sought a clarification from IRC and without making a reference to them, immediately filed the petition under Section 11(6) on the purported ground that the Indian Road Congress had failed to make the appointment within the stipulated time. Therefore, the reliance placed by the respondent on the judgment of this Court in the case of Punj Lloyd Ltd. v. Petronet MHB Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Judge the Presiding Arbitrator also has to be a retired Judge. The parties have entered into a contract after fully understanding the import of the terms so agreed to from which there cannot be any deviation. The Courts have held that the parties are required to comply with the procedure of appointment as agreed to and the defaulting party cannot be allowed to take advantage of its own wrong. 12. The learned counsel for the respondent placed reliance upon the judgment of the Supreme Court in the case of SBP Co. (supra) and ore particularly Paragraphs 29 to 34, 36, 41 to 49 which reads thus : 29. Sections 14 and 15 enumerate the circumstances in which the mandate of an arbitrator shall terminate. Sub- section (1) of Section 14 lays down that the mandate of an arbitrator shall terminate if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay and he withdraws from his office or the parties agree to terminate his mandate. Sub-section (2) lays down that if there is any controversy between the parties in relation to any of the grounds referred to in Clause (a) of Sub-section (1) and there is no other provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under Section 11(5) read with Section 15(2) of the Act and prayed that the Chief Justice of the High Court may appoint a substitute arbitrator to resolve the disputes between the parties. The learned Chief Justice dismissed the application and held that Section 15(2) refers not only to statutory rules framed for regulating appointment of arbitrators but also to contractual provisions for such appointment. 33. The Division Bench of the High Court which heard the writ petition filed by the petitioners noted that in view of the judgment of the larger Bench in S.B.P. Company v. Patel Engineering Ltd. and Anr. (supra), a writ petition would not lie against an order made by the Chief Justice under Section 11 of the Act and an appeal could be filed only under Article 136 of the Constitution but proceeded to consider the issue raised by the writ petitioners on merits on the premise that appointments made on or before the judgment of the larger Bench had been saved. The Division Bench then observed that in terms of Section 15(2) of the Act, the Managing Director could, by relying upon the arbitration agreement, appoint another arbitrator because the original arbitrator had resigne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or arbitrators. Sub-section (6) sets out the contingencies when party may request the Chief Justice or any person or institution designated by him to take necessary measures unless the agreement on the appointment procedure provides other means for securing the appointment. The contingencies contemplated in Sub-section (6) statutorily are (i) a party fails to act as required under agreed procedure or (ii) the parties or the two appointed arbitrators fail to reach an agreement expected of them under that procedure or (iii) a person including an institution fails to perform any function entrusted to him or it under the procedure. In other words, the third contingency does not relate to the parties to the agreement or the appointed arbitrators. The crucial expression in Sub-section (6) is a party may request the Chief Justice or any person or institution designated by him to take the necessary measures (underlined for emphasis). This expression has to read alongwith requirement in Sub-section (8) that the Chief Justice or the person or an institution designated by him in appointing an arbitrator shall have due regard to the two cumulative conditions relating to qualifications ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctionary (Eighth Edition, p.1632) - the act of taking back or away, removal; the act of retreating from a place, position or situation. 3. New Oxford Illustrated Dictionary (Volume II, p.1894) - pull aside or back, take away, remove, retract; retire from presence or place, go aside or apart. 44. The above extracted meanings of two words bring out sharp distinction between them. While the word `refuse' denotes a situation before acceptance of an invitation, offer, office, position, privilege and the like, the word `withdraw' means to retract, retire or retreat from a place, position or situation after acceptance thereof. Therefore, Section 15(2) of the Act does not per se apply to a case where an arbitrator appointed by a party to the agreement declines to accept the appointment or refuses to arbitrate in the matter. Of course in a given case, refusal to act on the arbitrator's part can be inferred after he has entered upon arbitration by giving consent to the nomination made by either party to the agreement. 45. Insofar as this case is concerned, we find that the arbitrator appointed by respondent No. 1, namely, Shri S.N. Huddar declined to accept the appointme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a provision for appointment of a substitute arbitrator if the original appointment terminates or if the original arbitrator withdraws from the arbitration and this omission is supplied by Section 15(2) of the Act, if that paragraph is read in conjunction with paragraphs 2 and 3 it becomes clear that the arbitration agreement did provide for appointment of another arbitrator in the event originally appointed arbitrator was to resign and there was no plausible reason for the Court to presume that there is an omission in the agreement on the issue of appointment of a substitute arbitrator. In any case, the judgment cannot be read as laying down a proposition of law that in the absence of a specific provision in the arbitration clause, either party to the agreement can appoint a substitute arbitrator in the event of the originally appointed arbitrator refusing to act. 48. At the cost of repetition, we consider it necessary to observe that the agreements entered into between the appellant and respondent No. 1 do not contain a provision for appointment of a substitute arbitrator in case arbitrator appointed by either party was to decline to accept appointment or refuse to arbitrate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice or any person or institution designated by him take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. (7) A decision on a matter entrusted by sub- section (4) or sub- section (5) or sub section (6) to the Chief Justice or the person or institution designated by him is final. (8) The Chief' Justice or the person or institution designated by him, in appointing arbitrator, shall have due regaled to- (a) any qualifications required of the arbitrator by the agreement of the parties and (b) other considerations as are likely to secure the appointment of an independent, and impartial arbitrator. (9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities. (10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by sub- section (4) or sub- section (5) or sub- section (6) to him. (11) Where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement entered into between the parties or said appointment can be done only by consent of the parties. 16. It is common ground that the appointment of Dr. Biredra Saraf made by this court by order dated 29th June, 2012 was not under section 11 of the Arbitration Act, 1996. The said order came to be passed in Company Petition filed by the applicant seeking winding up of the respondent company. Dr. Birendra Saraf was not designated or named arbitrator under the Arbitration Clause forming part of the agreement. In view of the objections raised by the applicant for his acting as arbitrator, he did not accept the said appointment. Though there is no specific provisions authorizing respondent to appoint substitute arbitrator if the original appointment is terminated or in the event original appointed arbitrator withdraws from the arbitration, such power in my view is provided under section 15(2) of the Arbitration Act, 1996. Under section 15(2), the appointment of the substituted arbitrator or replacement of the arbitrator by another has to be done in accordance with the rules that were applicable to the appointment of the original arbitrator who was being replaced. The Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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